Two directors of Nathans Finance have been jailed for their part in the company’s failure; two others received home detention. Just over one million dollars in reparations is held by the High Court to be divided among investors. While imposing jail sentences, the judge emphasised that the directors had neither acted dishonestly nor intentionally misled investors but were being punished for inept performance, failing to do their job properly.
Penalties followed convictions for breaches of the Securities Act 1978 after Nathans issued a misleading prospectus and investment statement when seeking funds from the public. Investors were owed some $174 million when Nathans went into receivership in 2007. On current estimates, losses of about $168 million are expected.
Statements in Nathans’ prospectus about related party lending and the extent of bad debts were misleading. Investors could not make an informed decision before investing. Nathans received about $66 million by way of new investment or reinvestment after issuing the misleading prospectus.
Justice Heath said penalties imposed must reflect three consequences of the directors’ behaviour:
· their inept management discourages investors in future from lending to finance companies
· this will reduce venture capital investment, and
· might reduce overseas investment in New Zealand ventures because of doubts about the integrity and competence of New Zealand management.
He also said offers by a director to pay reparations should be taken into account as evidence of remorse for wrongful behaviour.
Kenneth Roger Moses was sentenced to two years and two months imprisonment and ordered to pay $425,000 reparations. He had expressed concerns about the high level of intercompany lending but while on the board and as chairman did little to correct the position. “Actions speak louder than words”, Justice Heath said.
Mervyn Ian Doolan was sentenced to two years and four months imprisonment and ordered to pay $150,000 reparation. He is a qualified chartered accountant and along with Moses was described as having a full understanding of Nathans finances.
Donald Menzies Young was sentenced to nine months home detention, 300 hours community service and ordered to pay reparation of $310,000. He joined Nathans’ board two years before receivership. He was described as the least culpable of the company’s directors, being reliant on information from his co-directors. The court indicated that Young was not given as complete a picture of the company’s position by his fellow directors as could be expected.
At an earlier High Court hearing, John Lawrence Hotchin, another Nathans director, was sentenced to eleven months home detention, 200 hours community work and ordered to pay $200,000 reparation. He was sentenced early, after pleading guilty to the charges and agreeing to give evidence at the trial of his fellow directors.
Reparations ordered against the four directors totals $1.085 million. Justice Heath directed that the money be paid into the High Court and distributed pro rata by the receivers among those investors who had invested in the company. A further court hearing will determine who is eligible for payment.
R. v. Moses, Doolan & Young – High Court (2.09.11) & R. v. Hotchin – High Court (4.03.11)
09.11.003